Federal Real Estate Regulations

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New “Federal Mortgage Rules” – What will be the side effects and risks?

Published November 7, 2016 by Real Estate Leads


Not only hopeful home buyers, but also home owners should review the new “federal mortgage rules” which took effect this past October 2016. Everyone should be concerned with the increased risk of lower economic output, as that would appear to be a logical result of the regulatory changes.

As quoted by HiBusiness magazine’s Caleb MacCauley in :

“Adjustments to the rules could engender an orderly transition to a more balanced system and soft landing for house prices. But, while hoping for the best, Canadians would be wise to prepare for something worse than the oft-touted transition to stability. … Any serious attempt to change the rules around insured mortgages could roil share prices of publicly-listed Canadian lenders as well as disrupt financing for housing. The availability of mortgage credit could dry up and conditions would be much more difficult for many buyers. … A painful unwinding of elevated leverage in the Canadian financial system is the most likely outcome, based on observation of similar adjustments in the U.S., Ireland and Spain.”

HiBusiness warned – The surprise introduction of the new mortgage rules should cause Canadian consumers to be“extremely vigilant” especially since real estate transactions are contributing at an all time high to our national Gross Domestic Product.

The stricter affordability “stress test” – which intends to measure consumers’ability to pay at the 5-year posted rate of 4.64 % (about double the rate of recent years past) will affect the purchasing power and decisions of hundreds of thousands of buyers.

For example, the HiBusiness article pointed out the following example scenario:

“For a household with $100,000 in total income the stress test could mean a 20% drop in approved mortgage [qualification]. The Bank of Canada estimated that more than 20% of all insured mortgages were contracted by households that have loan-to-income ratios of more than 450%. ”… Home buyers in Vancouver, Toronto, Victoria, Calgary and Edmonton are at the head of this class of risky borrowers. The slowdown in new money from this second source of buying power will have a large impact, especially on new home builders in those centres.

What are your thoughts on the matter? We’d like to know. Should the free market be left free, or should the market continue to be every more highly regulated? As one of our previous articles posed the big question of: “ Should foreign investors be allowed to purchase Canadian homes? Perhaps that is where new regulation should be implemented first.

Please contact us with your thoughts. We love hearing from Canadian Real Estate Agents, and also members of the general public.